All About Credit Counseling

At one time or another, you have probably heard the term credit counseling, but you may not know exactly what it is. It's different from debt settlement or debt negotiation because in credit counseling, you actually work with a credit counselor to get your bills paid off on a timely schedule in payments that you can afford.

So, when should a person consider credit counseling? Usually, when someone is having difficulty paying even their monthly payments on time, it's a good indicator that they need help. In addition, if your accounts have been turned over to collection agencies, you are probably in need of a good credit counselor.

If any of this sounds like you, read the following to find out just what credit counseling is, and how you can use it to your advantage.

How to Find a Credit Counselor

To start with, you'll need to search for a reliable credit counseling service. Your best bet is to look for one accredited by Consumer Credit Counseling Services (CCCS) because they will likely be a qualified service and not one of the scams that you hear so much about. If any counseling service promises to remove true, but damaging, items from your credit report, or promises to eliminate your debt, you should be aware that they are probably operating a scam.

What a Credit Counselor Does

After you've located a good service, you'll need to spend some time with a counselor showing them all of the specifics of your debt. It's important to tell them about all of your debt, and not leave anything out because they will need all of the information to best create a budget for you.

Next, the counselor will then contact all of your lenders and make arrangements for a payment plan that you can realistically stick to. Sometimes they can reduce your interest rates, or even the original balance.

You may have the option of a debt management system that most credit counseling services offer. With this type of arrangement, you will make a lump sum payment to the service, and they will then pay each of your creditors on a monthly basis. It is vital that each payment is paid on time, so if you doubt the service's ability to do it, you should do it on your own.

The credit counseling service will charge you a small monthly fee for their services, but be wary of those services who try to charge a large, up-front fee because that is a sure sign of a company that only cares about getting your money and not with helping your credit problems.

Credit Counseling Can Damage Your Credit Report

Finally, you should be aware that working with a credit counseling service can do damage to your credit report. At this point, you simply need to ask yourself what would be worse: continuing on your former path and suffering from missed payments and charge-offs which will destroy your credit report, or suffer a mild setback on your report, and in the process get you debt paid down in a workable way that will allow you, in time, to be debt free.

Summary

If you are having trouble making your monthly payments, you may benefit from a credit counseling service
When choosing a counselor, select one accredited by Consumer Credit Counseling Services (CCCS)
A counselor will merge your payments into one payment which you make to the credit counseling agency
There will be a small monthly fee, but beware of large up-front fees as a sign of a potential scam
Credit counseling can have a negative effect on your credit report

Now that you know about the option of credit counseling services, it's time to look at something you can do on your own to reduce your total debt, in How to Negotiate Debt Settlements.